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Wednesday, May 20, 2009

HUH?

I read an article in the San Diego Union Tribune yesterday about what a good thing it is that the VIX is dropping way down. This person went further to say that is what the rally needs to continue.

When I was younger this type of thing would have sent me through the roof. I really don't like it when stupid people are consulted as experts. It is possible that this person just may have never studied the VIX or did not have any understanding of what it really tells us. However, he is supposed to be an expert isn't he so shouldn't he know of what he speaks?

I am not an expert on the VIX, but what I am is somebody who has studied in detail how to use it to trade the SP 500. A shift to a relatively low reading is a warning sign of an impending decline. Conversely, a sharp spike up is the opposite, an indication of a coming rally.

This is the final piece we need to start looking aggressively for sell signals. This tells us there is complacency in the markets, and that there is a lack of an overall worry of a decline. There are alot of lines on this chart which are moving averages of the VIX and then moving averages plus or minus 15% of themselves. You can see where the RED arrow is yesterday that when we close below the line that is 15% less than the 10 day moving average, it is a sell signal for the stock market. This generally is good for the next couple of days. In this case I would like to see the RSI of VIX get under 5, that would be a greenlight special to short this sucker.

Oh wait, I am wrong, the expert says I should commit more money to the market right at a point where all the pros are shorting it......... At the very least do not add exposure to the market here and take some off the table if you have made some money since March.

Sunday, May 10, 2009

Here is a chart of the Naz, I have left prices out due to having to block that part of the window so as not the reveal exactly what this oscillator is. It is what it is, this is free and I am not in the practice of giving up my secrets. The point is that this oscillator is now warning of a top at hand finally.

Often oscillators give many false top signals in trend moves up like this, and this one is no different. However, if we couple that with the seasonal tendency for a top here and the commercials activity leaning to the short side, this has to be taken into account. One of my mentors has called for a 5/29 top date, I have no idea if that will be correct or not, but if you read my prior posts I had a may and june date as possible places for a cycle top. So now that we are in that zone of time and these other items are lining up, I do think it is time to start taking sell signals in the indexes.

We are experiencing tremendous rallies across the board in almost every market in the futures, some of which are on the border of breaking weekly down trends. However, there are seasonal tendencies for peaks in alot of them in the next month so it is time to be on the lookout for a resumption of some of these longer term down trends.

Wednesday, May 06, 2009

I hate it of course because of the collective fraud going on to rope suckers into moving their money into it due to the impending end of the United States and the dollar.

Notice how well this market has followed the seasonal pattern recently, rallied right on schedule from the low, and peaked similarly on schedule. This pattern calls for a slow drift down for a few more months. Rarely will the seasonal be this spot on do we cannot rely on it solely for trading decisions, but it can give us a bias of what to look for at certain times and that is how I use them.

Most of my short term indicators are still indicating a down trend so I am looking to short rallies, although I did buy it the day after the recent low with a short term technique I use for counter trend trading, but have exited that trade at this point. In the metals, Copper is by far the strongest up trend now, so longs should be done there not in Gold. You always want to buy the strong and sell the weak in a complex. Too many people have this notion of the weak will catch up, this does not happen.

As a result bearish folks should short gold and bullish should buy copper.

Monday, May 04, 2009

Here is the daily chart of the SP 500, what I call a running market. I did post last week that I thought it was time to get out. From a big picture standpoint I still believe that, however when we get into these running markets where as you can see the pullbacks are very small and do not form any wave type of look, it is very difficult to time an entry in the opposite direction. The reason for this is virtually every oscillator will diverge for awhile before these come to an end.

This last week did not show much change in the commercials activity, and there is not such an overwhelming amount that this can be turned on a dime. However, when the commercials are net short at the time of they year when the seasonal high is here, we need to look for a decline. I have not shorted this yet and doubt I will today the way things look. It is more likely that I will short this after we get a drop and then rally against it which could take some time.

I posted the chart completely plain to demonstrate one thing. If this was all you looked at without dates or indicators and were to place a bet on where the price would be in a week, I bet most would say higher. That is the point, don't get cute picking tops. We are in an area where one should occur but that is no lock that it will. If we were to blow through this area in the face of a commercial short position, that in reality would be a buy signal and indicate my call for this to be a top is wrong.

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My wife and I have been dog lovers for many years constantly moving up in the food chain. When we first met she had a Cairn terrier I named Louie after Louis Winthorp in the movie Trading Places. Since that time we have moved up into the world of Saint Bernards and we have found our calling in life. We live on a ranch with a large crew of Saint Bernards mostly from rescues with a few exceptions.

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